AVZ Minerals Limited
Annual Report 2014

Plain-text annual report

AVZ Minerals Limited ABN 81 125 176 703 Annual Report 2014 Contents Corporate Directory Directors’ Report Auditor’s Independence Declaration Consolidated Statement of Profit or Loss and Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to the Consolidated Financial Statements Directors’ Declaration Independent Auditor’s Report ASX Additional Information Corporate Governance Statement Schedule of Mineral Tenements 1 2 11 12 13 14 15 16 34 35 37 38 44 Corporate Directory Directors Patrick Flint (Non-Executive Chairman) Klaus Eckhof (Managing Director) Gary Steinepreis (Non-Executive Director) Company Secretary Gary Steinepreis Principal Place of Business & Registered Office Level 1 33 Ord Street WEST PERTH Western Australia 6005 Telephone: (08) 9420 9300 Facsimile: (08) 9420 9399 Share Registry Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153 Telephone: (08) 9315 2333 Facsimile: (08) 9315 2233 Email: registrar@securitytransfer.com.au Auditors BDO Audit (WA) Pty Ltd 38 Station Street SUBIACO WA 6008 Telephone: (08) 6382 4600 Securities Exchange Listing Australian Securities Exchange (Home branch: Perth, Western Australia) ASX Code: AVZ Website Address www.avonleaminerals.com.au AVZ Minerals Limited | 1 For personal use only Director’s Report Your directors submit their report on the consolidated entity consisting of AVZ Minerals Limited (ASX: AVZ) (“AVZ”) and the entities it controlled for the financial year ended 30 June 2014. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows: Directors 1. The names of directors who held office during or since the end of the year and until the date of this report are as follows. Directors were in office for the entire period unless otherwise stated. Patrick Flint Klaus Eckhof Gary Steinepreis Roger Steinepreis David Riekie Non-Executive Chairman (Appointed 12 May 2014) Managing Director (Appointed 12 May 2014) Non-Executive Director Non-Executive Chairman (Resigned 12 May 2014) Non-Executive Director (Resigned 12 May 2014) Company Secretary 2. The Company Secretary is Gary Steinepreis. Principal Activities 3. The principal activity of the consolidated entity during the financial year was mineral exploration. There were no significant changes in the nature of the consolidated entity’s principal activities during the financial year. 4. Operating Results The loss of the consolidated entity attributable to the owners of the company after providing for income tax amounted to $1,031,442 (2013: $2,413,002 loss). Dividends Paid or Recommended 5. The directors do not recommend the payment of a dividend and no amount has been paid or declared by way of a dividend to the date of this report. Review of Operations 6. During the year, AVZ continued its business of mineral exploration in Namibia and as part of a broader strategic review, AVZ is seeking, together with its current projects, new opportunities in the exploration and mining sector. Activities undertaken in Namibia during the year involved planning, on-going reporting and applying for a number of licence renewals. A strategic review of the package of granted licences and applications was commenced to determine the best approach to optimise the value of the Namibian assets. On 12 May 2014, the Company announced a capital raising to provide additional funds for ongoing exploration activities, working capital and new opportunities and changes to the Board. The capital raising comprised a share placement of 62.5m new ordinary fully paid shares at 0.8 cents per share to raise a total of $500,000. Firm commitments were received from sophisticated and professional investors pursuant to Section 708 of the Corporations Act. The placement occurred in two tranches as follows:  Tranche 1 - 53.5 million shares at 0.8 cents to raise $428,000 under the Company’s placement capacity, pursuant to ASX Listing Rule 7.1 and Listing Rule 7.1A; and  Tranche 2 - 9 million shares at 0.8 cents to raise $72,000 being the participation of the new Directors, which was approved by shareholders, pursuant to ASX Listing Rule 10.11. The Company is primarily engaged in mineral exploration in Namibia. The Company’s financial position, financial performance and use of funds information for the financial year is provided in the financial statements that follow this Directors’ Report. As an exploration entity, the Company has no operating revenue or earnings and consequently the Company’s performance cannot be gauged by reference to those measures. Instead, the Directors’ consider the Company’s performance based on the success of exploration activity, acquisition of additional prospective mineral interests and, in general, the value added to the Company’s mineral portfolio during the course of the financial year. Whilst performance can be gauged by reference to market capitalisation, that measure is also subject to numerous external factors. These external factors can be specific to the Company, generic to the mining industry and generic to the stock market as a whole and the Board and management would only be able to control a small number of these factors. AVZ Minerals Limited | 2 Director’s Report 6. Review of Operations (continued) The Company’s business strategy for the financial year ahead and, in the foreseeable future, is to continue exploration activity on the Company’s existing mineral projects, identify and assess new mineral project opportunities and review development strategies where individual projects have reached a stage that allows for such an assessment. Due to the inherent risky nature of the Company’s activities, the Directors are unable to comment on the likely results or success of these strategies. The Company’s activities are also subject to numerous risks, mostly outside the Board’s and management’s control. These risks can be specific to the Company, generic to the mining industry and generic to the stock market as a whole. The key risks, expressed in summary form, affecting the Company and its future performance include but are not limited to:        geological and technical risk posed to exploration and commercial exploitation success; security of tenure including licence renewal (no assurance can be given that the licence renewals and licence applications that have been submitted will be successful), and inability to obtain regulatory or landowner consents; change in commodity prices and market conditions; environmental and occupational health and safety risks; government policy changes; retention of key staff; and capital requirement and lack of future funding. This is not an exhaustive list of risks faced by the Company or an investment in it. There are other risks generic to the stock market and the world economy as whole and other risks generic to the mining industry, all of which can impact on the Company. Significant Changes in the State of Affairs 7. There have been no significant changes in the state of affairs of the group to the date of this report, not otherwise disclosed in this report. Significant Events After Balance Date 8. On 1 September 2014, the Company lodged a Prospectus for a 1 for 3 entitlement issue at 0.5 cents per share to raise $609,854 (gross proceeds based on the Company’s expanded issued capital). The offer closed fully subscribed and on 23 September 2014 the Company issued 121,970,028 shares. Other than as disclosed in this report, there has been no matter or circumstance that has arisen that has significantly affected, or may significantly affect:    the group’s operations in future financial years, or the results of those operations in future financial years, or the group’s state of affairs in future financial years. Likely Developments and Expected Results of Operations 9. The group will continue its mineral exploration activity at and around its exploration projects as well as seeking new opportunities in the exploration and mining sector with the objective of identifying commercial resources. Further information on likely developments in the operations of the group and the expected results of operations have not been included in the annual report because the directors believe it would be likely to result in unreasonable prejudice to the group. Therefore, this information has not been presented in this report. 10. Environmental Regulation The group is aware of its environmental obligations with regards to its exploration activities and ensures that it complies with all regulations when carrying out any exploration work. AVZ Minerals Limited | 3 Director’s Report 11. this report) Information on Directors and Company Secretary (including Director’s interests at the date of Patrick Flint Qualifications Experience Independent Non-Executive Chairman B.Com, CA, MAICD Mr Flint has been involved in the resources sector as a director or company secretary of ASX and Toronto Stock Exchange listed companies with mineral projects in Australia, Africa and Asia for the last 20 years. He is a Chartered Accountant and has significant experience with project acquisitions, joint venture negotiations and management, fundraisings and corporate matters. Interest in Securities Fully Paid Ordinary Shares Performance Rights 4,000,000 4,000,000 Directorships in last 3 years Mount Magnet South Limited (since 15 April 2011) Nemex Resources Ltd (since 8 September 2010) Explaurum Limited (since 28 November 2013) Former Directorships in the Last Three Years: Erongo Energy Limited (23 November 2006 to 17 February 2012) Klaus Eckhof Qualifications Experience Managing Director Dip. Geol. TU, AusIMM Mr Eckhof is a geologist with more than 20 years of experience identifying, exploring and developing mineral deposits around the world. Mr Eckhof worked for Mount Edon Gold Mines Ltd as Business Development Manager before it was acquired by Canadian mining company Teck. In 1994, he founded Spinifex Gold Ltd and Lafayette Mining Ltd, both of which successfully delineated gold and base metal deposits. In late 2003, Mr Eckhof founded Moto Goldmines which acquired the Moto Gold Project in the Democratic Republic of the Congo. There, Mr Eckhof and his team delineated more than 20 million ounces of gold and delivered a feasibility study within four years from the commencement of exploration. Moto Goldmines was subsequently acquired by Randgold Resources who poured first gold in September 2013. Interest in Securities Fully Paid Ordinary Shares 8,000,000 Directorships in last 3 years Burey Gold Ltd (since 6 February 2012) Carnavale Resources Ltd (appointed 1 January 2008) Panex Resources Inc. (appointed 30 May 2006) Cardinal Resources Limited (appointed 1 February 2013) Former Directorships in the Last Three Years: Explaurum Limited (24 August 2011 to 4 October 2013) Kilo Goldmines Limited (13 April 2009 – 31 December 2011) Gary Steinepreis Qualifications Non-Executive Director / Company Secretary B.Com, CA Experience Mr Steinepreis is a Chartered Accountant and holds a Bachelor of Commerce Degree from the University of Western Australia. Interest in Securities Fully Paid Ordinary Shares 20,495,533 Directorships in last 3 years Monto Minerals Ltd (since 16 June 2009) Norseman Gold Plc (since 3 December 2007) New Horizon Coal Ltd (since 4 June 2010) Intercept Minerals Ltd (since 8 April 2014) Former Directorships in the Last Three Years: Minerals Corporation Limited (17 February 2011 to 14 October 2011) WAG Limited (2 November 2006 to 23 May 2013) Agri Energy Limited (22 June 2009 to 11 June 2012) AVZ Minerals Limited | 4 Director’s Report 11. this report) (continued) Information on Directors and Company Secretary (including Director’s interests at the date of Former Directors: Roger Steinepreis Qualifications Experience David Riekie Qualifications Experience Non-Executive Director B.Juris, LLB Mr Steinepreis graduated from the University of Western Australia where he completed his law degree. He was admitted as a barrister and solicitor of the Supreme Court of Western Australia in 1987 and has been practising as a lawyer for over 20 years. Mr Steinepreis is the legal advisor to a number of public companies on a wide range of corporate related matters. His areas of practice focus on company restructures, initial public offerings and takeovers. Non-Executive Director B.Ec, Dip Acc, CA, MAICD Mr Riekie was previously an Executive Director of a boutique corporate advisory company for over 13 years. During this time has held a variety of non-executive board position with both resource and industrial companies. He has a significant level of experience in capital raising initiatives (public and private), and corporate matters strategies, both in Australia and overseas. David is a Chartered Accountant, a Member of the Institute of Company Directors and holds a Bachelor of Economics Degree and a Diploma of Accounting. Audited Remuneration Report 12. This report details the nature and amount of remuneration for all key management personnel of AVZ Minerals Limited and its subsidiaries. The information provided in this remuneration report has been audited as required by section 308(C) of the Corporations Act 2001. For the purposes of this report, key management personnel of the Group are defined as those persons having authority and responsibility for planning, directing and controlling the major activities of the Company and the Group, directly or indirectly, including any Director (whether executive or otherwise) of the Group. The individuals included in this report are: Patrick Flint Klaus Eckhof Gary Steinepreis Roger Steinepreis David Riekie Non-Executive Chairman (Appointed 12 May 2014) Managing Director (Appointed 12 May 2014) Non-Executive Director Non-Executive Chairman (Resigned 12 May 2014) Non-Executive Director (Resigned 12 May 2014) All of the key management personnel held their positions for the entire financial year and up to the date of the report except as noted above. Remuneration Policy (a) The remuneration policy of AVZ Minerals Limited has been designed to align director objectives with shareholder and business objectives by providing a fixed remuneration component which is assessed on an annual basis in line with market rates. By providing components of remuneration that are indirectly linked to share price appreciation (in the form of options), executive, business and shareholder objectives are aligned. The board of AVZ Minerals Limited believes the remuneration policy to be appropriate and effective in its ability to attract and retain the best directors to run and manage the company, as well as create goal congruence between directors and shareholders. The board’s policy for determining the nature and amount of remuneration for board members is as follows: AVZ Minerals Limited | 5 Director’s Report (a) Remuneration Policy (continued) (i) Executive Directors & Other Key Management Personnel The remuneration policy and the relevant terms and conditions has been developed by the full Board of Directors as the company does not have a Remuneration Committee due to the size of the Company and the Board. In determining competitive remuneration rates, the Board reviews local and international trends among comparative companies and industry generally. It examines terms and conditions for employee incentive schemes, benefit plans and share plans. Reviews are performed to confirm that executive remuneration is in line with market practice and is reasonable in the context of Australian executive reward practices. If entitled, the executive directors and other key management personnel receive a superannuation guarantee contribution required by the government, which is currently 9.25% and do not receive any other retirement benefits. The Company is an exploration entity, and therefore speculative in terms of performance. Consistent with attracting and retaining talented executives, directors and senior executives are paid market rates associated with individuals in similar positions, within the same industry. The Managing Director, Mr Eckhof, is responsible for completing the strategic review of the Company’s mineral projects in Namibia, as well as identifying new project opportunities. Mr Eckhof will receive annual remuneration of $180,000 through a consulting letter agreement with an entity which will provide his services. The arrangement can be terminated by either party on a month’s notice. At this stage due to the size of the Company, no remuneration consultants have been used. The Board’s remuneration policies are outlined below: Fixed Remuneration All executives receive a base cash salary which is based on factors such as length of service and experience as well as other fringe benefits. If entitled, all executives also receive a superannuation guarantee contribution required by the government, which is currently 9.25% and do not receive any other retirement benefits. Short-term Incentives (STI) Under the group’s current remuneration policy, executives can from time to time receive short-term incentives in the form of cash bonuses. However, as the company is currently undertaking a strategic review, there are currently no short-term incentives anticipated and therefore no key performance targets determined. Pending the strategic review, the Board will determine the criteria of eligibility for short- term incentives and set key performance indicators to appropriately align shareholder wealth and executive remuneration. Long-term Incentives (LTI) Executives are encouraged by the Board to hold shares in the company and it is therefore the Group’s objective to provide incentives for participants to partake in the future growth of the group and, upon becoming shareholders in the Company, to participate in the group’s profits and dividends that may be realised in future years. The Board considers that this equity performance linked remuneration structure is effective in aligning the long-term interests of group executives and shareholders as there exists a direct correlation between shareholder wealth and executive remuneration. (ii) Non-Executive Directors The board policy is to remunerate non-executive directors at market rates for comparable companies for time, commitment and responsibilities. In determining competitive remuneration rates, the Board review local and international trends among comparative companies and the industry generally. Typically the Company will compare non-executive remuneration to companies with similar market capitalisations in the exploration and resource development business group. These on-going reviews are performed to confirm that non-executive remuneration is in line with market practice and is reasonable in context of Australian executive reward practices. The maximum aggregate amount of fees that can be paid to non-executive directors is subject to approval by shareholders at the Annual General Meeting. Fees for non-executive directors are not linked to the performance of the Company. However, to align directors’ interests with shareholder interests, the directors are encouraged to hold shares in the company and from time to time, non-executive’s may receive options or performance rights subject to shareholder approval, to further align directors’ interests with shareholders. AVZ Minerals Limited | 6 Director’s Report (a) Remuneration Policy (continued) The non-executive remuneration is set at $3,000 per month for the Chairman, $2,000 per month for Directors and a daily rate is payable on additional work performed. (b) Company Performance, Shareholder Wealth and Directors’ and Executives’ Remuneration No relationship exists between the Company performance, earnings, shareholder wealth and Directors’ and Executive Remuneration for this financial period and the previous 4 financial periods. As at the date of the report, the Company is currently undergoing a strategic review. With the exception of the Managing Director, no executive is receiving any base remuneration however, this will be reassessed upon completion of the strategic review. Given the review, no remuneration is currently performance related. Voting and comments made at the company’s 2013 Annual General Meeting At the 2013 Annual general Meeting the Company remuneration report was passed by the requisite majority of shareholders (100% by a show of hands). (b) Details of Key Management Personnel Remuneration 2014 Name Executive Director: Klaus Eckhof 2 Non-Executive Directors: Roger Steinepreis 1 David Riekie 1 Gary Steinepreis Patrick Flint 2 TOTAL Short term employee benefits Salary $ - - - - 4,517 4,517 Consulting fees $ 25,000 20,000 20,000 24,000 - 89,000 Post- employment benefits Superannuation $ - - - - 418 418 Total $ 25,000 20,000 20,000 24,000 4,935 93,935 1: Mr David Riekie and Mr Roger Steinepreis resigned as Non-Executive Directors on 12 May 2014. 2: Mr Klaus Eckhof and Mr Patrick Flint were appointed on 12 May 2014. AVZ Minerals Limited | 7 Director’s Report (b) Details of Key Management Personnel Remuneration (continued) 2013 Name Executive Director: David Riekie 2 Non-Executive Directors: Roger Steinepreis David Riekie 2 Gary Steinepreis 4 David Macoboy 1 Hamish Halliday 3 Stephen Parsons 3 Key Executives: Alex Aitken TOTAL Short term employee benefits Salary $ Consulting fees $ Post- employment benefits Superannuation $ Total $ 38,175 - 3,435 41,610 - - - 3,822 - - 69,350 111,347 14,000 24,000 24,000 - - - - 62,000 - - - 344 - - 14,000 24,000 24,000 4,166 - - 6,241 10,020 75,591 183,367 1: Mr David Macoboy was appointed Non-Executive Chairman on 22 September 2011 and resigned on 3 August 2012. 2: Mr David Riekie resigned as Managing Director on 3 August 2012, however remains as a non-executive director. 3: Mr Hamish Halliday and Mr Stephen Parsons resigned as Non-Executive Directors on 30 November 2012. 4: Mr Gary Steinepreis was appointed on 30 November 2012. (d) Details of Share Based Payments There have been no options issued to current directors and executives as part of their remuneration. On 8 August 2014, 4,000,000 Performance Rights were issued to Mr Flint. The Performance Rights vest if the closing price of Shares on the ASX is $0.015 or higher (as adjusted) for 10 consecutive Business Days. These Performance Rights have a period of 3 years from the date of issue to vest or they will lapse. (e) Employment Contracts of Directors and Senior Executives The Managing Director, Mr Eckhof, is responsible for completing the strategic review of the Company’s mineral projects in Namibia, as well as identifying new project opportunities. Mr Eckhof will receive annual remuneration of $180,000 through a consulting letter agreement with an entity which will provide his services. The arrangement can be terminated by either party on a month’s notice. There were no performance bonuses paid during the year ended 30 June 2014. (f) Key Management Personnel Compensation Options provided as remuneration and shares issued on exercise of such options (i) No options were provided as remuneration during the year. All options held by key management personnel of the group at the start of the current year expired during the financial year. Loans to key management personnel (ii) No loans were made to any director or other key management personnel of the group, including their personally related parties during the financial year. (iii) Other transactions with key management personnel Transactions with Director Related Parties The following transactions occurred with related parties: AVZ Minerals Limited | 8 Director’s Report (f) Key Management Personnel Compensation (continued) Consolidated Purchases from director related entities Payments for shared services costs to Gryphon Minerals Limited Payments for shared services costs to Venture Minerals Limited Payment to Steinepreis Paganin for legal fees Payment to Ascent Capital – rent 2014 $ - - 200 26,250 Outstanding balances arising from recharges/purchases with Director Related Parties Current payables (purchases) 3,045 2013 $ 29,481 19,291 28,030 30,000 - Terms and conditions of related party transactions Transactions between related parties are on commercial terms and conditions, no more favourable than those available to other parties unless otherwise stated. (iv) Option holdings The number of options over ordinary shares in the company held during the financial year by each director of AVZ Minerals Limited and other key management personnel of the group, including their personally related parties, are set out below. Directors and other key management personnel did not hold options in the period if they are not stated below: Balance at start of the year Granted as remuneration Exercised Other changes Balance at end of the year Vested and exercisable 2014 Directors of AVZ Minerals Limited Roger Steinepreis David Riekie 1,500,000 14,000,000 - - - - (1,500,000) (14,000,000) - - - - Ordinary shareholdings (v) The number of shares in the company held during the financial year by each director of AVZ Minerals Limited and other key management personnel of the group, including their personally related parties, are set out below. There were no shares granted during the period as remuneration. Other Changes Balance at the start of the year Received on exercise of options Balance at the end of the year 2014 Directors of AVZ Minerals Limited Patrick Flint 1 Klaus Eckhof 1 Roger Steinepreis 2 David Riekie 2 Gary Steinepreis - - 24,051,442 16,365,696 15,371,649 1 Patrick Flint and Klaus Eckhof were appointed on 12 May 2014. 2 Roger Steinepreis and David Riekie resigned on 12 May 2014. This is the end of the audited remuneration report. - - - - - - - (24,051,442) (16,365,696) - - - - - 15,371,649 AVZ Minerals Limited | 9 Director’s Report 13. Meetings of Directors The number of directors' meetings held during the financial year and the number of meetings attended by each director is: Director P Flint K Eckhof G Steinepreis D Riekie R Steinepreis Directors Meetings Number Eligible to Attend 1 1 3 2 2 Meetings Attended 1 1 3 2 2 The company does not have a formally constituted audit committee as the board considers that the company’s size and type of operation do not warrant such a committee. Insurance of Officers 14. During the financial year, AVZ Minerals Limited paid a premium of $13,140 (2013: $17,820) to insure the directors and secretary of the company and its controlled entities. The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the Group, and any other payments arising from liabilities incurred by the officers in connection with such proceedings. This does not include such liabilities that arise from conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities. 15. Shares under Option Unissued ordinary shares of AVZ Minerals Limited under option at the date of this report are as follows: Date options granted 31 Jan 11 4 Nov 11 12 Jan 12 Expiry Date 30 Nov 14 31 Oct 14 31 Oct 14 Exercise Price 20.0 cents 11.0 cents 11.0 cents Number under Option 2,000,000 1,500,000 400,000 No option holder has any right under the options to participate in any other share issue of the company or any other entity. 16. Proceedings on behalf of the Company No person has applied for leave of Court to bring proceedings on behalf of the company or intervene in any proceedings to which the company is a party for the purpose of taking responsibility on behalf of the company for all or any part of these proceedings. The company was not a party to any such proceedings during the year. 17. Auditor’s Independence Declaration Section 307c of the Corporations Act 2001 requires our auditors, BDO Audit (WA) Pty Ltd, to provide the directors of the Company with an Independence Declaration in relation to the audit of the annual report. This Independence Declaration is set out on page 11 and forms part of this directors’ report for the year ended 30 June 2014. 18. Non-Audit Services No fees were paid or payable to the auditors for non-audit services performed during the year ended 30 June 2014 (2013: nil). Signed in accordance with a resolution of the Board of Directors. Gary Steinepreis Non-Executive Director West Perth, 26 September 2014 AVZ Minerals Limited | 10 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia DECLARATION OF INDEPENDENCE BY BRAD MCVEIGH TO THE DIRECTORS OF AVZ MINERALS LIMITED As lead auditor of AVZ Minerals Limited for the year ended 30 June 2014, I declare that, to the best of my knowledge and belief, there have been: 1. No contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and 2. No contraventions of any applicable code of professional conduct in relation to the audit. This declaration is in respect of AVZ Minerals Limited and the entities it controlled during the period. Brad McVeigh Director BDO Audit (WA) Pty Ltd Perth, 30 September 2014 BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. Consolidated Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 30 June 2014 Revenue from continuing operations Other income Administrative costs Consultancy expenses Employee benefits expense Occupancy expenses Compliance and regulatory expenses Insurance expenses Depreciation expense Exploration impaired Loss before income tax Income tax expense Loss for the year Other comprehensive income: Items that may be reclassified to profit or loss Exchange differences arising on translation of foreign operations Other comprehensive income Note 3 3 9 10 6 Consolidated 2014 $ 2013 $ 42,619 - (29,118) (94,282) (46,975) (57,000) (56,741) (9,855) (9,421) (770,669) 30,753 40,089 (135,380) (56,100) (68,571) (63,033) (70,639) (18,081) (26,502) (2,045,538) (1,031,442) (2,413,002) - - (1,031,442) (2,413,002) (123,877) (123,877) 24,632 24,632 Total comprehensive loss for the year (1,155,319) (2,388,370) Loss for the year is attributable to: Owners of AVZ Minerals Limited Non-controlling interests Total comprehensive loss for the year attributable to: Owners of AVZ Minerals Limited Non-controlling interests (902,725) (128,717) (1,031,442) (2,308,824) (104,178) (2,413,002) (1,020,406) (134,913) (1,155,319) (2,270,413) (117,957) (2,388,370) Basic and diluted loss per share (cents per share) 16 (0.33) (1.20) The accompanying notes form part of these financial statements. AVZ Minerals Limited | 12 Consolidated Statement of Financial Position As at 30 June 2014 Current Assets Cash and cash equivalents Trade and other receivables Total Current Assets Non Current Assets Property, plant and equipment Exploration & evaluation expenditure Total Non Current Assets Total Assets Current Liabilities Trade and other payables Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity Reserves Accumulated losses Capital and reserves attributable to owners of AVZ Minerals Ltd Non-controlling interests 12 14 Total Equity The accompanying notes form part of these financial statements. Note 7 8 9 10 Consolidated 2014 $ 2013 $ 1,986,678 29,978 1,834,742 28,925 2,016,656 1,863,667 5,763 - 15,607 867,567 5,763 2,022,419 883,174 2,746,841 11 57,017 25,152 57,017 57,017 1,965,402 25,152 25,152 2,721,689 13,340,115 642,268 (11,736,425) 2,245,958 (280,556) 12,941,083 759,949 (10,833,700) 2,867,332 (145,643) 1,965,402 2,721,689 AVZ Minerals Limited | 13 Consolidated Statement of Changes in Equity For the Year Ended 30 June 2014 Consolidated Contributed Equity Accumulated Losses Option Reserve $ $ $ Foreign Currency Translation Reserve $ Total Non- controlling Interests Total Equity $ $ $ Balance at 1 July 2013 Total comprehensive income for the year: Loss for the year Exchange differences on translation of foreign operations Contributions of equity (net of transaction costs) Balance at 30 June 2014 Balance at 1 July 2012 Total comprehensive income for the year: Loss for the year Exchange differences on translation of foreign operations Contributions of equity (net of transaction costs) Balance at 30 June 2013 12,941,083 (10,833,700) 1,310,448 (550,499) 2,867,332 (145,643) 2,721,689 - - - (902,725) - (902,725) 399,032 399,032 - - - - - - - - (902,725) (128,717) (1,031,442) (117,681) (117,681) (117,681) (1,020,406) (6,196) (134,913) (123,877) (1,155,319) - - 399,032 399,032 - - 399,032 399,032 13,340,115 (11,736,425) 1,310,448 (668,180) 2,245,958 (280,556) 1,965,402 11,115,614 (8,524,876) 1,310,448 (588,910) 3,312,276 (27,686) 3,284,590 - - - (2,308,824) - (2,308,824) 1,825,469 1,825,469 - - - - - - - - (2,308,824) (104,178) (2,413,002) 38,411 38,411 38,411 (2,270,413) (13,779) (117,957) 24,632 (2,388,370) - - 1,825,469 1,825,469 - - 1,825,469 1,825,469 12,941,083 (10,833,700) 1,310,448 (550,499) 2,867,332 (145,643) 2,721,689 The accompanying notes form part of these financial statements. AVZ Minerals Limited | 14 Consolidated Statement of Cash Flows For the Year Ended 30 June 2014 Note Consolidated 2014 $ 2013 $ Cash Flows from Operating Activities Payments to suppliers and employees (inclusive of GST) Interest received (219,480) 42,619 (705,148) 30,753 Net cash outflow from operating activities 17 (176,861) (674,395) Cash Flows from Investing Activities Payments for (proceeds from) property, plant and equipment Payments for exploration and evaluation Credit card deposit returned - (70,236) - 26,023 (139,851) 30,000 Net cash outflow from investing activities (70,236) (83,828) Cash Flows from Financing Activities Proceeds from issue of shares and other equity securities Share issue transaction costs 428,000 (28,967) 1,967,062 (141,593) Net cash inflow from financing activities 399,033 1,825,469 Net increase in cash and cash equivalents 151,936 1,067,246 Cash and cash equivalents at the start of the year 1,834,742 767,496 Cash and cash equivalents at the end of the year 7 1,986,678 1,834,742 The accompanying notes form part of these financial statements. AVZ Minerals Limited | 15 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 1. Summary of Significant Accounting Policies The principal accounting policies adopted in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. These financial statements present the financial information for AVZ Minerals Limited as a consolidated entity consisting of AVZ Minerals Limited and the entities is controlled throughout the year (‘group’ or ‘consolidated entity’). Basis of Preparation (a) The financial report is a general purpose financial report which has been prepared in accordance with the requirements of Australian Accounting Standards, other authoritative pronouncements of the Australian Accounting Standards Board, Accounting Interpretations and the Corporations Act 2001. (i) (ii) (b) Statement of Compliance The financial report complies with Australian Accounting Standards which include International Financial Reporting Standards as adopted in Australia. Compliance with these standards ensures that the consolidated financial statements and notes as presented comply with International Financial Reporting Standards (IFRS). Historical cost convention These financial statements have been prepared under the historical cost convention, as modified by the revaluation of available for sale financial assets. Basis of Consolidation Subsidiaries (i) The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of AVZ Minerals NL as at 30 June 2014 and the results of all subsidiaries for the year then ended. AVZ Minerals NL and its subsidiaries together are referred to in this financial report as the group or the consolidated entity. Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de- consolidated from the date that control ceases. Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. (ii) Joint arrangements Under AASB 11 Joint Arrangements investments in joint arrangements are classified as either joint operations or joint ventures. The classification depends on the contractual rights and obligations of each investor, rather than the legal structure of the joint arrangement. (iii) Joint operations The group recognises its direct right to the assets, liabilities, revenues and expenses of joint operations and its share of any jointly held or incurred assets, liabilities, revenues and expenses. (iv) Joint ventures Interests in joint ventures are accounted for using the equity method, after initially being recognised at cost in the consolidated balance sheet Segment reporting (c) Operating segments are reported in a manner that is consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of directors. AVZ Minerals Limited | 16 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 1. Summary of Significant Accounting Policies (continued) Revenue recognition (d) Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and amounts collected on behalf of third parties. Revenue is recognised for the business activities as follows: Interest income (i) Interest income is recognised as the interest accrues (using the effective interest method, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument) to the net carrying amount of the financial asset. Income tax (e) The income tax expense or benefit for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses. Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss. Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity. Leases (f) Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the statement of comprehensive income over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the statement of comprehensive income on a straight-line basis over the period of the lease. Impairment of assets (g) At each reporting date the group assesses whether there is any indication that an asset may be impaired. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date. (h) Cash and cash equivalents For the purpose of presentation of the statement of cash flows, cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. AVZ Minerals Limited | 17 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 1. Summary of Significant Accounting Policies (continued) Trade and other receivables (i) Trade and other receivables are initially recognised initially at fair value and subsequently measured at amortised costs using the effective interest method, less provision for impairment. Trade and other receivables are generally due for settlement within 30 days. Collectability of trade receivables is reviewed on an ongoing basis. Amounts that are known to be uncollectible are written off by reducing the carrying amount directly. Exploration and evaluation expenditure (j) Exploration, evaluation and development expenditure incurred is accumulated in respect of each identifiable area of interest. These costs are carried forward only if they relate to an area of interest for which rights of tenure are current and in respect of which:  Such costs are expected to be recouped through successful development and exploitation or from sale of the area: or Exploration and evaluation activities in the area have not, at balance date, reached a stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active operations in, or relating to, the area are continuing.  Accumulated costs in respect of areas of interest which are abandoned are written off in full against profit in the year in which the decision to abandon the area is made. A regular review is undertaken of each area of interest to determine the appropriateness of continuing to carry forward costs in relation to that area of interest. Property, plant and equipment (k) All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the company and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the statement of comprehensive income during the financial period in which they are incurred. Depreciation on Australian assets is calculated using the straight line method (Namibian assets using diminishing value) to allocate their cost, net of their residual values, over their estimated useful lives, as follows: Plant and equipment - office Furniture and equipment - office Plant and equipment – field (Australia) Plant and equipment – field (Namibia) Motor Vehicles (Namibia) 40.0% 20.0% 20.0% 22.5% 22.5% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (note 1(g)). Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the statement of comprehensive income. Trade and other payables (l) These amounts represent liabilities for goods and services provided to the company prior to the end of financial year which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within 12 months. Provisions (m) Provisions are recognised when the company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount has been reliably estimated. Provisions are not recognised for future operating losses. Provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance date. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability. The increase in the provision due to the passage of time is recognised as interest expense. AVZ Minerals Limited | 18 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 1. (n) Summary of Significant Accounting Policies (continued) Employee benefits (i) Short-term obligations Liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date are recognised in respect of employee’s services up to the end of the reporting period and are measured at the amounts expected to be paid when liabilities are settled. The liability for annual leave is recognised in the provision for employee benefits. All other short-term employee benefit obligations are presented as other payables. (ii) Long service leave The liability for long service leave and annual leave which is not expected to be settled within 12 months after the end of the period in which the employees render the related service is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows. The obligations are presented as current liabilities in the balance sheet if the entity does not have an unconditional right to defer settlement for at least twelve months after the reporting date, regardless of when the actual settlement is expected to occur. (iii) Share-based payments The company provides benefits to employees (including directors) of the company in the form of share-based payment transactions, whereby employees render services in exchange for shares or rights over shares (‘equity-settled transactions’).The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined using an appropriate option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of shares of AVZ Minerals Limited (‘market conditions’). (o) Contributed equity Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares for the acquisition of a business are not included in the cost of the acquisition as part of the purchase consideration. (p) Earnings per share (i) Basic earnings per share Basic earnings per share is calculated by dividing the profit/loss attributable to equity holders of the company excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the financial year, adjusted for bonus elements in ordinary shares issued during the year. (ii) Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after tax effect of interest and other financing costs associated with the dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares. (q) Goods and services tax (GST) and Value added tax (VAT) Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Revenue, expenses and assets incurred in Namibia are recorded inclusive of VAT and no receivable or payable is recorded as the recoverability of the VAT from the relevant taxation authority is uncertain. Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the statement of financial position. Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flows. AVZ Minerals Limited | 19 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 1. (r) Summary of Significant Accounting Policies (continued) Foreign currency translation (i) Functional and presentation currency Items included in the financial statements of each of the group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is AVZ Mineral’s functional and presentation currency. (ii) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income, except when they are deferred in equity as qualifying cash flow hedges and qualifying net investment hedges or are attributable to part of the net investment in a foreign operation. Translation differences on financial assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non- monetary financial assets such as equities classified as available for sale financial assets are included in the fair value reserve in equity. (iii) Group companies Assets and liabilities for each statement of financial position presented are translated at the closing rate at the The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:  date of that statement of financial position  Income and expenses for the statement of comprehensive income are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions), and  All resulting exchange differences are recognised as a separate component of comprehensive income. On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other financial instruments designated as hedges of such investments, are recognised in other comprehensive income. When a foreign operation is sold or any borrowings forming part of the net investment are repaid, a proportionate share of such exchange differences are recognised in the statement of comprehensive income, as part of the gain or loss on sale where applicable. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entities and translated at the closing rate. (s) New accounting standards and interpretations The accounting policies have been consistently applied by the Consolidated Group and are consistent with those applied in the previous financial year and those of the corresponding interim reporting period, except the following: - AASB 10 Consolidated Financial Statements - AASB 11 Joint Arrangements - AASB 13 Fair Value Measurement - AASB 119 Employee benefits - AASB 2012-5 Amendments to Australian Accounting Standards arising from Annual Improvements 2009-2011 Cycle Adoption of new and revised accounting standards In the year ended 30 June 2014, the Company has reviewed all of the new and revised Standards and Interpretations issued by the AASB that are relevant to its operations and effective for annual reporting periods beginning on or after 1 July 2013. It has been determined by the Company that, there is no impact, material or otherwise, of the new and revised standards and interpretations on its business and therefore no change is necessary to Company accounting policies. No retrospective change in accounting policy or material reclassification has occurred requiring the inclusion of a third Statement of Financial Position as at the beginning of the comparative financial period, as required under AASB 101. Parent Entity Financial Information (t) The financial information for the parent entity, AVZ Minerals Limited, disclosed in note 23 has been prepared on the same basis as the consolidated financial statements. AVZ Minerals Limited | 20 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 2. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that may have a financial impact on the entity and that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future. The resulting accounting estimates and judgements may differ from the related actual results and may have a significant effect on the carrying amount of assets and liabilities within the next financial year and on the amounts recognised in the financial statements. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of deferred exploration and evaluation expenditure (a) Exploration and evaluation costs are carried forward where right of tenure of the area of interest is current. These costs are carried forward in respect of an area that has not at balance date reached a stage that permits reasonable assessment of the existence of economically recoverable reserves. The Board and Management have assessed the carrying value of the Exploration and Evaluation Expenditure to be impaired. Refer to the accounting policy stated in note 1(j) and to note 11 for movements in the exploration and evaluation expenditure balance. Share based payment transactions (b) The group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by an internal valuation using a Black- Scholes option pricing model. 3. (a) Revenue From continuing operations Interest received (b) Other income Refund of VAT Proceeds from sale of plant and equipment Total revenue from other revenue 4. (a) (b) (c) 5. (a) Loss for the Year Depreciation of non-current assets Plant and equipment - office Plant and equipment - field Motor vehicle Total depreciation Asset write-down expense Write-down of fixed assets Total asset write-down expense Foreign exchange loss Net foreign exchange loss Total foreign exchange loss Auditor’s Remuneration Remuneration of the auditors of the consolidated entity for: Auditing or reviewing the financial statements: BDO Audit (WA) Pty Ltd - Non-assurance services Total remuneration of auditors Consolidated 2014 $ 2013 $ 42,619 30,753 - - 42,619 2,778 6,643 - 9,421 - - - - 21,539 18,550 40,089 12,209 13,825 468 26,502 1,313 1,313 3,224 3,224 32,698 - 32,698 33,000 - 33,000 AVZ Minerals Limited | 21 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 6. (a) Income Tax Expense Income tax expense Current tax Deferred tax Total income tax expense Deferred income tax expense included in income tax expense comprises: Decrease/(Increase) in deferred tax assets (note 6(c)) Increase/(Decrease) in deferred tax liabilities (note 6(d)) Consolidated 2014 $ 2013 $ - - - - - - - - - - - - (b) Numerical reconciliation of income tax expense to prima facie tax payable Loss from continuing operations before income tax expense Tax at the tax rate of 30.0% (2013: 30.0%) (1,031,442) (309,433) (2,413,002) (723,901) Tax effect of amounts which are not deductible in calculating taxable income: Exploration written off Share based payments Other non-deductible amounts Differences in overseas tax rates Unrecognised tax losses Income tax expense/(benefit) (c) Deferred tax asset not recognised Tax losses Exploration and expenditure Other Net deferred tax recognised 231,200 - 13,257 - 64,976 607,297 - 29,098 4,444 83,062 - - 1,654,138 1,281,824 7,031 2,942,993 1,605,478 316,444 7,198 1,929,120 1: The deferred tax asset attributable to tax losses does not exceed taxable amounts arising from the reversal of existing assessable temporary differences. 7. (a) Cash & Cash Equivalents Cash & cash equivalents Cash at bank & in hand Total cash & cash equivalents (b) Cash at bank and in hand Consolidated 2014 $ 2013 $ 1,986,678 1,986,678 1,834,742 1,834,742 Cash on hand is non-interest bearing. Cash at bank bears interest rates between 0.00% and 2.25% (2013: 0.00% and 3.50 %). Refer to note 15 for the group’s exposure to interest rate and credit risk. AVZ Minerals Limited | 22 For personal use only Notes to the Consolidated Financial Statements for the year ended 30 June 2014 Trade & Other Receivables Current Other receivables Total current trade & other receivables Consolidated 2014 $ 29,978 29,978 2013 $ 28,925 28,925 Past due and impaired receivables As at 30 June 2014, there were no other receivables that were past due or impaired (2013: nil). Effective interest rates and credit risk Information concerning effective interest rates and credit risk of both current and non-current trade and other receivables is set out in note 15. 8. (a) (b) (c) Property, Plant & Equipment 9. (a) Year ended 30 June 2014 Opening net book amount Additions Disposals/write-offs/adjustments Depreciation charge Closing net book amount At 30 June 2014 Cost Disposals/write-offs/adjustments Accumulated depreciation Net book amount (b) Year ended 30 June 2013 Opening net book amount Additions Disposals/write-offs/adjustments Depreciation charge Closing net book amount At 30 June 2013 Cost Accumulated depreciation Net book amount Consolidated Motor Vehicles $ Plant & Office Field $ Plant & Office Equipment $ - - - - - - - - - 30,878 - (30,410) (468) - 11,068 - (423) (6,643) 4,002 58,896 2,188 (57,082) 4,002 21,819 - 3,074 (13,825) 11,068 4,539 - - (2,778) 1,761 28,544 - (26,783) 1,761 16,748 - - (12,209) 4,539 - - - 58,896 28,544 (47,828) 11,068 (24,005) 4,539 Total $ 15,607 - (423) (9,421) 5,763 87,440 2,188 (83,865) 5,763 69,445 - (27,336) (26,502) 15,607 87,440 (71,833) 15,607 AVZ Minerals Limited | 23 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 Exploration & Evaluation Expenditure 10. Exploration and evaluation phase Opening balance Exploration and acquisition costs Impairment expense1 Foreign Exchange Movement Closing balance Consolidated 2014 $ 2013 $ 867,567 - (770,669) (96,898) - 2,752,038 139,851 (2,024,322) - 867,567 1 Board and Management have assessed the carrying value of the Exploration and Evaluation Expenditure to be impaired and have provided for an impairment expense to reduce the carrying value to the expected recoverable amount. The value of the group’s interest in exploration expenditure is dependent upon:  the continuance of the company’s rights to tenure of the areas of interest;  the results of future exploration; and  the recoupment of costs through successful development and exploitation of the areas of interest, or alternatively, by their sale. 11. Trade & Other Payables Current Trade Payables Total current trade & other payables The group’s exposure to foreign currency risk is noted in note 15. Consolidated 2014 $ 2013 $ 57,017 57,017 25,152 25,152 Consolidated 2014 Shares 2013 Shares Consolidated 2014 $ 2013 $ 12. Contributed Equity (a) Contributed Equity Ordinary shares - fully paid 356,912,482 303,412,482 13,340,115 12,941,083 Total Contributed Equity 356,912,482 303,412,482 13,340,115 12,941,083 (b) Ordinary Shares Ordinary shares participate in dividends and the proceeds on winding up of the company in proportion to the number of shares held and in proportion to the amount paid up on the shares held. At shareholders meetings each ordinary share is entitled to one vote in proportion to the paid up amount of the share when a poll is called, otherwise each shareholder has one vote on a show of hands. (c) Options Information relating to options including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 15. (d) Performance incentive shares All performance incentive shares have lapsed as the conditions were not met in the required timeframe. AVZ Minerals Limited | 24 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 12. Contributed Equity (continued) Date Number of Shares $ Issue Price $ Total $ (e) Movements in contributed equity Opening Balance 1 July 2012 Issue of shares: Placement Issue of shares: Placement Issue of shares: Placement Less: Transaction costs arising on share issues Closing Balance at 30 June 2013 Opening Balance 1 July 2013 Issue of shares: Placement Less: Transaction costs arising on share issues Closing Balance at 30 June 2014 121,706,241 23 Oct 12 29 Jan 13 23 Oct 12 18,250,000 $0.015 151,706,241 $0.01 18,250,000 $0.015 303,412,482 303,412,482 21 May 2014 53,500,000 $0.008 356,912,482 11,115,614 273,750 1,517,062 273,750 (141,593) 12,941,083 12,941,083 428,000 (28,968) 13,340,115 Granted during the year Exercised during the year Cancelled/ lapsed during the year Balance at end of the year Expiry date Exercise price Balance at start of year 13. Share Options (a) 2014 unlisted share option details 31 Aug 13 31 Aug 13 31 Aug 13 31 Aug 13 31 Aug 13 14 Nov 13 31 Mar 14 22 May 14 22 May 14 22 May 14 31 May 14 31 May 14 31 May 14 30 Nov 14 31 Oct 14 15.0 cents 20.0 cents 25.0 cents 30.0 cents 45.0 cents 15.0 cents 10.0 cents 20.0 cents 30.0 cents 45.0 cents 11.0 cents 20.0 cents 25.0 cents 20.0 cents 11.0 cents 3,250,000 2,500,000 2,500,000 2,500,000 2,500,000 6,000,000 400,000 7,125,000 7,125,000 7,125,000 400,000 2,500,000 2,500,000 2,000,000 1,900,000 49,925,000 Expiry date Exercise price Balance at start of year (b) 2013 unlisted share option details Granted during the year 31 Aug 13 31 Aug 13 31 Aug 13 31 Aug 13 31 Aug 13 14 Nov 13 31 Mar 14 22 May 14 22 May 14 22 May 14 30 Nov 14 31 May 14 31 May 14 31 May 14 31 Oct 14 15.0 cents 20.0 cents 25.0 cents 30.0 cents 45.0 cents 15.0 cents 10.0 cents 20.0 cents 30.0 cents 45.0 cents 20.0 cents 11.0 cents 20.0 cents 25.0 cents 11.0 cents 3,250,000 2,500,000 2,500,000 2,500,000 2,500,000 6,000,000 400,000 7,125,000 7,125,000 7,125,000 2,000,000 400,000 2,500,000 2,500,000 1,500,000 49,925,000 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Exercised during the year - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,250,000 2,500,000 2,500,000 2,500,000 2,500,000 6,000,000 400,000 7,125,000 7,125,000 7,125,000 400,000 2,500,000 2,500,000 - - 46,025,000 - - - - - - - - - - - - - 2,000,000 1,900,000 3,900,000 Cancelled/ lapsed during the year Balance at end of the year - - - - - - - - - - - - - - - - 3,250,000 2,500,000 2,500,000 2,500,000 2,500,000 6,000,000 400,000 7,125,000 7,125,000 7,125,000 2,000,000 400,000 2,500,000 2,500,000 1,500,000 49,925,000 AVZ Minerals Limited | 25 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 14. Reserves (a) Unlisted option reserve Opening balance Unlisted options issued as remuneration during the year Closing balance Consolidated 2014 $ 2013 $ 1,310,448 - 1,310,448 1,310,448 - 1,310,448 The unlisted option reserve records items recognised on valuation of director, employee and contractor share options as well as share options issued during the course of a business combination. Information relating to the details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 13. (b) Foreign Currency Translation Reserve Opening balance Exchange difference arising on translation of foreign operations Closing balance (550,499) (588,910) (117,681) (668,180) 38,411 (550,499) The foreign currency translation reserve records exchange differences arising on translation of foreign controlled entities. The exchange differences arising are recognised in other comprehensive income as detailed in note 1(r) and accumulated within a separate reserve within equity. The cumulative amount is reclassified to the statement of profit or loss or other comprehensive income when the net investment is disposed of. (c) Total reserves Unlisted option reserve Foreign currency translation reserve Total reserves 1,310,448 (668,180) 642,268 1,310,448 (550,499) 759,949 15. Financial Instruments, Risk Management Objectives and Policies The consolidated entity’s principal financial instruments comprise cash and cash equivalents. The main purpose of the financial instruments is to earn the maximum amount of interest at a low risk to the company. The consolidated entity also has other financial instruments such as trade debtors and creditors which arise directly from its operations. For the year under review, it has been the consolidated entity’s policy not to trade in financial instruments. The main risks arising from the consolidated entity’s financial instruments are interest rate risk and credit risk. The board reviews and agrees policies for managing each of these risks and they are summarised below: (a) Interest Rate Risk The group’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of changes in market interest rates and the effective weighted average interest rate for each class of financial assets and financial liabilities comprises: Consolidated 2014 Financial assets Cash and cash equivalents Trade & other receivables - current Financial Liabilities Trade and other payables - current Weighted Average Interest Rate % 2.25% 0.00% 0.00% Floating Interest Rate Fixed Interest $ 1,986,678 - 1,986,678 - - $ - - - - - Total Non- interest bearing $ $ - 29,978 29,978 1,986,678 29,978 2,016,656 57,017 57,017 57,017 57,017 AVZ Minerals Limited | 26 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 15. Financial Instruments, Risk Management Objectives and Policies (continued) Consolidated 2013 Financial assets Cash and cash equivalents Trade & other receivables - current Financial Liabilities Trade and other payables - current Weighted Average Interest Rate 3.50% 0.00% 0.00% Floating Interest Rate Fixed Interest Total Non- interest bearing 1,834,742 - 1,834,742 - - - - - - - 28,925 28,925 1,834,742 28,925 1,863,667 25,152 25,152 25,152 25,152 The maturity date for all cash, current receivables and trade and other payable financial instruments included in the above tables is one year or less from balance date. The maturity for the non-current receivables is between 1 and 3 years from balance date. (i) Sensitivity analysis The group’s main interest rate risk arises from cash equivalents with variable and fixed interest rates. At 30 June 2014 and 30 June 2013, the group’s exposure to interest rate risk is not deemed material. (b) Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group. The group has adopted the policy of only dealing with credit worthy counterparties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the group’s maximum exposure to credit risk. All cash equivalents are held with financial institutions with a credit rating of A1+ or above, with the exception of cash on hand of $NIL (2013: $NIL) which is not rated. (c) Foreign Currency Risk The group is exposed to fluctuations in foreign currencies arising from exploration commitments in currencies other than the group’s presentational currency (Australian Dollars). The group operates internationally and is exposed to foreign exchange risk arising from currency exposures to the Namibian Dollar (NAD). The group has not formalised a foreign currency risk management policy, however it monitors its foreign currency expenditure in light of exchange rate movements, and retains the right to withdraw from the foreign exploration commitments after the minimum expenditure targets have been met. (i) Sensitivity analysis The group’s main foreign currency risk arises from cash equivalents held in foreign currency denominated bank accounts and other payable amounts denominated in currencies other than the group’s functional currency. At 30 June 2014 and 30 June 2013, the group’s exposure to foreign currency risk is not deemed material as the cash held in overseas financial institutions is not considered material to the group. AVZ Minerals Limited | 27 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 15. Financial Instruments, Risk Management Objectives and Policies (continued) (d) Liquidity risk The group manages liquidity risk by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Due to the dynamic nature of the underlying businesses, the group aims at ensuring flexibility in its liquidity profile by maintaining the ability to undertake capital raisings. The current trade and other payables are due and payable within 3 to 6 months. Contractual maturities of financial liabilities At 30 June 2014 Trade and other payables At 30 June 2013 Trade and other payables Less than 6 months $ 6-12 months $ Between 1 and 2 years $ Between 2 and 5 years $ Over 5 years $ 57,017 25,152 - - - - - - - - Total contractual cashflows $ Carrying amount liabilities $ 57,017 57,017 25,152 25,152 (e) Net fair value The carrying value and net fair values of financial assets and liabilities at balance date are: Consolidated Financial assets Cash and cash equivalents Trade & other receivables - current Financial Liabilities Trade and other payables - current 2014 2013 Carrying Amount $ Net fair Value $ Carrying Amount $ Net fair Value $ 1,986,678 29,978 2,016,656 1,986,678 29,978 2,016,656 1,834,742 28,925 1,863,667 1,834,742 28,925 1,863,667 57,017 57,017 57,017 57,017 25,152 25,152 25,152 25,152 (f) Fair value measurements The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes. AASB 7 Financial Instruments: Disclosures requires disclosure of fair value measurements by level of the following fair value measurement hierarchy: i) Quoted prices in active markets for identical assets or liabilities (level 1) ii) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (level 2); and Inputs for the asset or liability that are not based on observable market data (unobservable inputs) (level 3). iii) Due to their short term nature, the carrying amount of the current receivables and current payables is assumed to approximate their fair value. 16. Earnings per Share (a) Earnings/(Loss) Earnings/(loss) used in the calculation of basic EPS Consolidated 2014 $ 2013 $ (1,031,442) (2,413,002) (b) Weighted average number of ordinary shares (‘WANOS’) WANOS used in the calculation of basic earnings per share: 309,422,071 204,239,388 Diluted earnings per share is equal to basis loss per share as the company is in a loss position. AVZ Minerals Limited | 28 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 Consolidated 2014 $ 2013 $ 17. Cash Flow Information (a) Reconciliation of cash flows from operating activities with loss from ordinary activities after income tax: Loss for the year (1,031,442) (2,413,002) Depreciation Asset write-down expense Exploration impaired Other Changes in assets and liabilities: (Increase) in operating receivables & prepayments (Decrease) in trade and other payables 9,421 - 770,669 43,679 (1,053) 31,865 26,502 1,313 2,024,322 24,632 58,756 (396,918) Net cash outflows from Operating Activities (176,861) (674,395) (b) Non-cash investing and financing activities There are no non-cash investing and financing activities during the year (2013: nil). 18. Segment Information (a) Description of segments Management has determined the operating segments based on the reports reviewed by the chief operating decision maker that are used to make strategic decisions. For the purposes of segment reporting the chief operating decision maker has been determined as the board of directors. The board monitors the entity primarily from a geographical perspective, and has identified two operating segments, being exploration for mineral reserves within Africa and the corporate/head office function. (b) Segment information provided to the board of directors The segment information provided to the board of directors for the reportable segments for the year ended 30 June 2014 as follows: 2014 Total segment revenue Interest revenue Depreciation and amortisation expense Exploration impairment expense Total segment loss before income tax Total segment assets Total segment liabilities Africa $ Corporate $ Total $ - - - 770,669 815,512 42,619 42,619 9,421 - 215,930 42,619 42,619 9,421 770,669 1,031,442 29,081 1,993,338 2,022,419 1,049 55,968 57,017 AVZ Minerals Limited | 29 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 18. Segment Information (Continued) (b) Segment information provided to the board of directors (continued) (c) (d) (e) 2013 Total segment revenue Interest revenue Depreciation and amortisation expense Exploration impairment expense Total segment loss before income tax Total segment assets Total segment liabilities Africa $ Corporate $ Total $ - - 930 2,024,322 2,083,569 30,753 30,753 25,572 - 329,433 30,753 30,753 26,502 2,024,322 2,413,002 900,567 1,846,274 2,746,841 1,160 23,992 25,152 Measurement of segment information All information presented in part (b) above is measured in a manner consistent with that in the financial statements. Segment revenue No inter-segment sales occurred during the current or previous financial year. The entity is domiciled in Australia. No revenue was derived from external customers in countries other than the country of domicile. Revenues of $42,619 (2013: $30,753) were derived from one Australian financial institution during the period. These revenues are attributable to the corporate segment. Reconciliation of segment information Total segment revenue, total segment profit/loss before income tax, total segment assets and total segment liabilities as presented in part (b) above, equal total entity revenue, total entity profit/loss before income tax, total entity assets and total entity liabilities respectively, as reported within the financial statements. 19. Commitments and Contingencies There are no commitments or contingent liabilities outstanding at the end of the year. 20. Subsidiaries and non-controlling entities (a) Subsidiaries The consolidated financial statements incorporate the assets, liabilities and results of the following subsidiaries in accordance with the accounting policy described in note 1(b): Name of entity Northam Resources Ltd2 Himba Iron Exploration (Pty) Ltd Eris Mining (Pty) Ltd Tumba Base Metals X (Pty) Ltd Country of incorporation Australia Namibia Namibia Namibia Class of shares Ordinary Ordinary Ordinary Ordinary Equity holding1 2014 % 100 95 95 95 2013 % 100 95 95 95 1: The proportion of ownership interest is equal to the proportion of voting power held. 2: Company is dormant. AVZ Minerals Limited | 30 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 20. Subsidiaries and non-controlling entities (continued) (b) Non-controlling entities The following table sets out the summarised financial information for each subsidiary that has non-controlling interests that are material to the group. Amounts disclosed are before intercompany eliminations (AASB 12.B11) 30 June 2013 30 June 2014 Summarised statement of Himba Iron Exploration (Pty) Ltd Tumba Base Metals X (Pty) Ltd 30 June 2013 Financial Position $’000 - 1 1 29 - 29 (27) (1) Current Assets Non-current Assets Total Assets Current Liabilities Non-current Liabilities Total Liabilities Net Assets Accumulated NCI 30 June 2014 $’000 - - - 1,205 - 1,205 (1,205) (60) $’000 - - - 26 - 26 (26) (1) $’000 - 1,332 1,332 1,332 - 1,332 - - Eris Mining (Pty) Ltd 30 June 2014 $’000 25 81 106 2,496 - 2,496 (2,390) (119) 30 June 2013 $’000 29 1,465 1,494 2,692 - 2,692 (1,198) (60) Summarised statement of Profit or Loss and Other Comprehensive Income Revenue Profit for the period Other comprehensive income Total comprehensive income Profit/(Loss) allocated to NCI Dividends paid to NCI Himba Iron Exploration (Pty) Ltd Tumba Base Metals X (Pty) Ltd 30 June 2014 $’000 - (1,205) - (1,205) (60) - 30 June 2013 $’000 - - - - - - 30 June 2014 $’000 - (1) - (1) - - 30 June 2013 $’000 - - - - - - Eris Mining (Pty) Ltd 30 June 30 June 2013 2014 $’000 $’000 21 - (2,084) (1,368) - - (2,084) (1,368) (104) (68) - - Summarised cash flows Himba Iron Exploration (Pty) Ltd Tumba Base Metals X (Pty) Ltd Eris Mining (Pty) Ltd 30 June 2014 $’000 30 June 2013 $’000 30 June 2014 $’000 30 June 2013 $’000 30 June 2014 $’000 30 June 2013 $’000 Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents - - - - - - - - - - - - - - - - (1) - - (1) - - - - AVZ Minerals Limited | 31 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 21. Related Party Information (a) (b) (c) Parent entity The ultimate parent entity within the group is AVZ Minerals Limited. Subsidiaries Interests in subsidiaries are set out in note 20. Key management personnel Disclosures relating to key management personnel are set out in Directors’ Report. 2014 $ 2013 $ Key Management Personnel Compensation Summary remuneration Short-term employee benefits 173,347 Post-employment benefits 10,020 Long-term benefits - Share-based payments - 183,367 Total key management personnel compensation Details of remuneration disclosures are provided within the audited remuneration report which can be found on pages 5 to 9 of the directors’ report. 93,517 418 - - 93,935 22. Share Based Payments The Directors have not issued any options as remuneration during the current year (2013: nil). 23. (a) (b) (c) (d) Parent Entity Information Assets Current assets Non-current assets Total assets Liabilities Current liabilities Total liabilities Equity Contributed equity Accumulated losses Option reserve Total equity Total Comprehensive loss for the year Loss for the year Other comprehensive income for the year Total comprehensive loss for the year Company 2014 $ 2013 $ 1,991,577 1,761 1,993,338 1,835,091 878,749 2,713,840 55,967 55,968 23,992 23,992 13,340,115 (12,713,193) 1,310,448 1,937,370 12,941,083 (11,561,683) 1,310,448 2,689,848 (1,151,510) - (1,151,510) (2,353,755) - (2,353,755) The parent entity has not guaranteed any loans for any entity during the year. The parent entity does not have any contingent liabilities, or capital commitments. AVZ Minerals Limited | 32 Notes to the Consolidated Financial Statements for the year ended 30 June 2014 24. Significant Events After Balance Date On 1 September 2014, the Company lodged a Prospectus for a 1 for 3 entitlement issue at 0.5 cents per share to raise $609,854 (gross proceeds based on the Company’s expanded issued capital). The offer closed offer closed fully subscribed and on 23 September 2014 the Company issued 121,970,028 shares. Other than as disclosed in this report, there has been no matter or circumstance that has arisen that has significantly affected, or may significantly affect:    the group’s operations in future financial years, or the results of those operations in future financial years, or the group’s state of affairs in future financial years. AVZ Minerals Limited | 33 Directors’ Declaration In the directors’ opinion: (a) the financial statements and notes set out on pages 12 to 33 are in accordance with the Corporations Act 2001, including: (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and (ii) giving a true and fair view of the group’s financial position as at 30 June 2014 and of its performance for the financial year ended on that date; and (b) the audited remuneration disclosures set out on pages 5 to 9 of the directors’ report comply with section 300A of the Corporations Act 2001; and (c) at the date of this declaration, there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and (d) the financial statements and notes thereto are in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board. The directors have been given the declarations required by section 295A of the Corporations Act 2001. This declaration is made in accordance with a resolution of the Board of Directors. Gary Steinepreis Non-Executive Director West Perth, Western Australia 26 September 2014 AVZ Minerals Limited | 34 Tel: +61 8 6382 4600 Fax: +61 8 6382 4601 www.bdo.com.au 38 Station Street Subiaco, WA 6008 PO Box 700 West Perth WA 6872 Australia INDEPENDENT AUDITOR’S REPORT To the members of AVZ Minerals Limited Report on the Financial Report We have audited the accompanying financial report of AVZ Minerals Limited, which comprises the consolidated statement of financial position as at 30 June 2014, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, notes comprising a summary of significant accounting policies and other explanatory information, and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year. Directors’ Responsibility for the Financial Report The directors of the company are responsible for the preparation of the financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material misstatement, whether due to fraud or error. In Note 1(a)(i), the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that the financial statements comply with International Financial Reporting Standards. Auditor’s Responsibility Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. Those standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance about whether the financial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the company’s preparation of the financial report that gives a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO Audit (WA) Pty Ltd ABN 79 112 284 787 is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN 77 050 110 275, an Australian company limited by guarantee. BDO Audit (WA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, which has been given to the directors of AVZ Minerals Limited, would be in the same terms if given to the directors as at the time of this auditor’s report. Opinion In our opinion: (a) the financial report of AVZ Minerals Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the consolidated entity’s financial position as at 30 June 2014 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and (b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 1(a)(i). Report on the Remuneration Report We have audited the Remuneration Report included in the directors’ report for the year ended 30 June 2014. The directors of the company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Opinion In our opinion, the Remuneration Report of AVZ Minerals Limited for the year ended 30 June 2014 complies with section 300A of the Corporations Act 2001. BDO Audit (WA) Pty Ltd Brad McVeigh Director Perth, 30 September 2014 Shareholder Information Shareholding The distribution of members and their holdings of equity securities 25 September 2014 was as follows: in the holding company as at Number Held as at 25 September 2014 1- 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over Total Holders of less than a marketable parcel: 250 Substantial Shareholders The names of the substantial shareholders as at 25 September 2014. Class of Equity Securities Fully Paid Ordinary Shares 15 18 61 156 188 324 Shareholder Ranchland Holdings Pty Ltd Number 32,068,590 % 6.57 Voting Rights - Ordinary Shares In accordance with the holding company's Constitution, on a show of hands every member present in person or by proxy or attorney or duly authorised representative has one vote. On a poll every member present in person or by proxy or attorney or duly authorised representative has one vote for every fully paid ordinary share held. Twenty Largest Shareholders The names of the twenty largest ordinary fully paid shareholders as at 25 September 2014 are as follows: Shareholder JP Morgan Nominees Australia Ltd HSBC Custody Nominees Australia Ltd Oakhurst Enterprises Pty Ltd Leilani Inv Pty Ltd Ranchland Holdings Pty Ltd Seventy Three Pty Ltd N&J Mitchell Holdings Pty Ltd Wilhaja Pty Ltd J & J Brady Nominees Pty Ltd Merrill Lynch Aust Nom Pty Ltd Blueknight Pty Ltd Aviemore Cap Pty Ltd Talltree Holdings Pty Ltd Manuela Reitmeier Pershing Australia Nominees Pty Ltd Calama Holdings Pty Ltd Symorgh Inv Pty Ltd Talltree Holdings Pty Ltd Axino Investments Gmbh Piat Corp Pty Ltd Number % Held of Issued Ordinary Capital 36,785,863 21,603,752 20,495,533 20,089,276 19,235,256 17,920,308 15,162,199 11,228,814 11,120,308 10,290,131 9,333,334 8,994,638 8,445,920 8,333,400 8,000,000 7,983,334 7,210,000 7,152,229 7,000,000 6,002,206 262,386,501 7.54% 4.43% 4.20% 4.12% 3.94% 3.67% 3.11% 2.30% 2.28% 2.11% 1.91% 1.84% 1.73% 1.71% 1.64% 1.64% 1.48% 1.47% 1.43% 1.23% 53.78% AVZ Minerals Limited | 37 Corporate Governance Corporate Governance The Company is committed to implementing the highest standards of corporate governance. In determining what those high standards should involve the Company has turned to the ASX Corporate Governance Council’s Principles of Good Corporate Governance and Best Practice Recommendations. The Company is pleased to advise that the Company’s practices are largely consistent with those ASX guidelines. As consistency with the guidelines has been a gradual process, where the Company did not have certain policies or committees recommended by the ASX Corporate Governance Council (the Council) in place during the reporting period, we have identified such policies or committees. Where the Company’s corporate governance practices do not correlate with the practices recommended by the Council, the Company is working towards compliance however it does not consider that all the practices are appropriate for the Company due to the size and scale of Company operations. To illustrate where the Company has addressed each of the Council’s recommendations, the following table cross- references each recommendation with sections of this report. The table does not provide the full text of each recommendation but rather the topic covered. Recommendation Recommendation 1.1 Functions of the Board and Management Section 1.1 Recommendation 1.2 Evaluation of Board, Directors and Key Executives 1.4.10 Recommendation 1.3 Reporting on Principle 1 Recommendation 2.1 Independent Directors Recommendation 2.2 Independent Chairman Recommendation 2.3 Role of the Chairman and CEO Recommendation 2.4 Establishment of Nomination Committee Recommendation 2.5 Evaluation of Board, Committees and Directors Recommendation 2.6 Reporting on Principle 2 1.1 and 1.4.10 1.2 and 1.3 1.2 and 1.3 1.2 and 1.3 2.3 1.4.10 1.2, 1.4.6, 1.4.10, 2.3.1 and the Directors’ Report Recommendation 3.1 Code of Conduct Recommendation 3.2 Diversity Policy Recommendation 3.3 Reporting on Principle 3 Recommendation 3.4 Disclosure of Diversity Recommendation 4.1 Establishment of Audit Committee Recommendation 4.2 Structure of Audit Committee Recommendation 4.3 Audit Committee Charter Recommendation 4.4 Reporting on Principle 4 3 3.2 3.3 3.4 2.1 2.1.1 2.1 2.1 Recommendation 5.1 Policy for Compliance with Continuous Disclosure 1.4.4 Recommendation 5.2 Reporting on Principle 5 Recommendation 6.1 Communications Strategy Recommendation 6.2 Reporting on Principle 6 Recommendation 7.1 Policies on Risk Oversight and Management Recommendation 7.2 Managing and Implementing Risk Management Recommendation 7.3 Attestations by CEO and CFO Recommendation 7.4 Reporting on Principle 7 Recommendation 8.1 Establishment of Remuneration Committee Recommendation 8.2 Statement of Remuneration Committee 1.4.4 1.4.8 1.4.8 2.1.3 2.1.3 2.1.3 2.1.3 2.2 2.2.1 Recommendation 8.3 Executive and Non-Executive Director Remuneration 2.2.3.1 and 2.2.3.2 Recommendation 8.4 Reporting on Principle 8 1.2, 2.2.1 and 2.2.3.2 AVZ Minerals Limited | 38 Corporate Governance 1. Board of Directors Role of the Board 1.1 The Board’s role is to govern the Company rather than to manage it. In governing the Company, the Directors must act in the best interests of the Company as a whole. It is the role of senior management to manage the Company in accordance with the direction and delegations of the Board and the responsibility of the Board to oversee the activities of management in carrying out these delegated duties. In carrying out its governance role, the main task of the Board is to drive the performance of the Company. The Board must also ensure that the Company complies with all of its contractual, statutory and any other legal obligations, including the requirements of any regulatory body. The Board has the final responsibility for the successful operations of the Company. To assist the Board carry out its functions, the Company has adopted a Charter. A copy is available for inspection on the Company’s website. 1.2 Composition of the Board To add value to the Company the Board has been formed so that it has effective composition, size and commitment to adequately discharge its responsibilities and duties given its current size and scale of operations. The names of the Directors and their qualifications and experience are stated in the Directors’ Report along with the term of office held by each of the Directors. Directors are appointed based on the specific skills required by the Company and on their decision-making and judgment skills. The Company recognises the importance of Non-Executive Directors and the external perspective and advice that Non- Executive Directors can offer. The Board currently comprises of three Directorsand only Mr Flint is considered independent, therefore the Company does not have a majority of independent directors. Due to the size of the Company and the experience of the Directors, the Company believes that the current composition of the Board remains appropriate. Responsibilities of the Board 1.3 In general, the Board is responsible for, and has the authority to determine, all matters relating to the policies, practices, management and operations of the Company. It is required to do all things that may be necessary to be done in order to carry out the objectives of the Company. Without intending to limit this general role of the Board, the principal functions and responsibilities of the Board include the following.  Leadership of the Organisation: overseeing the Company and establishing codes that reflect the values of the Company and guide the conduct of the Board. Strategy Formulation: to set and review the overall strategy and goals for the Company and ensuring that there are policies in place to govern the operation of the Company.   Overseeing Planning Activities: the development of the Company’s strategic plan.  Shareholder Liaison: ensuring effective communications with shareholders through an appropriate communications policy and promoting participation at general meetings of the Company.  Monitoring, Compliance and Risk Management: the development of the Company’s risk management, compliance, control and accountability systems and monitoring and directing the financial and operational performance of the Company.  Company Finances: approving budgets and approving and monitoring acquisitions, divestitures and financial and other reporting.  Human Resources: appointing, and, where appropriate, removing the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) as well as reviewing the performance of the CEO and monitoring the performance of senior management in their implementation of the Company’s strategy. Ensuring the Health, Safety and Well-Being of Employees: in conjunction with the senior management team, developing, overseeing and reviewing the effectiveness of the Company’s occupational health and safety systems to ensure the well-being of all employees.   Delegation of Authority: delegating appropriate powers to the CEO to ensure the effective day-to-day management of the Company and establishing and determining the powers and functions of the Committees of the Board. Full details of the Board’s role and responsibilities are contained in the Board Charter, a copy of which is available for inspection on the Company’s website. AVZ Minerals Limited | 39 Corporate Governance 1. Board of Directors (continued) 1.4 Board Policies 1.4.1 Conflicts of Interest Directors must:  disclose to the Board actual or potential conflicts of interest that may or might reasonably be thought to exist between the interests of the Director and the interests of any other parties in carrying out the activities of the Company; and if requested by the Board, within seven days or such further period as may be permitted, take such necessary and reasonable steps to remove any conflict of interest.  If a Director cannot or is unwilling to remove a conflict of interest then the Director must, as per the Corporations Act, absent himself or herself from the room when discussion and/or voting occurs on matters about which the conflict relates. 1.4.2 Commitments Each member of the Board is committed to spending sufficient time to enable them to carry out their duties as a Director of the Company. 1.4.3 Confidentiality In accordance with legal requirements and agreed ethical standards, Directors and key executives of the Company have agreed to keep confidential, information received in the course of the exercise of their duties and will not disclose non- public information except where disclosure is authorised or legally mandated. 1.4.4 Continuous Disclosure The Board has designated the Company Secretary as the person responsible for overseeing and coordinating disclosure of information to the ASX as well as communicating with the ASX. In accordance with the ASX Listing Rules the Company immediately notifies the ASX of information:   concerning the Company that a reasonable person would expect to have a material effect on the price or value of the Company’s securities; and that would, or would be likely to, influence persons who commonly invest in securities in deciding whether to acquire or dispose of the Company’s securities. The Company has a Continuous Disclosure Policy which is available for inspection on the Company’s website. 1.4.5 Education and Induction It is the policy of the Company that new Directors undergo an induction process in which they are given a full briefing on the Company. Where possible this includes meetings with key executives, tours of the premises, an induction package and presentations. Information conveyed to new Directors include:          details of the roles and responsibilities of a Director; formal policies on Director appointment as well as conduct and contribution expectations; access to a copy of the Board Charter; guidelines on how the Board processes function; details of past, recent and likely future developments relating to the Board; background information on and contact information for key people in the organisation; an analysis of the Company; a synopsis of the current strategic direction of the Company; and a copy of the Constitution of the Company. In order to achieve continuing improvement in Board performance, all Directors are encouraged to undergo continual professional development. Specifically, Directors are provided with the resources and training to address skills gaps where they are identified. 1.4.6 Independent Professional Advice The Board collectively and each Director has the right to seek independent professional advice at the Company’s expense, to assist them to carry out their responsibilities. AVZ Minerals Limited | 40 Corporate Governance 1. Board of Directors (continued) 1.4.7 Related Party Transactions Related party transactions include any financial transaction between a Director and the Company. Unless there is an exemption under the Corporations Act from the requirement to obtain shareholder approval for the related party transaction, the Board cannot approve the transaction. 1.4.8 Shareholder Communication The Company respects the rights of its shareholders and to facilitate the effective exercise of those rights the Company is committed to:  communicating effectively with shareholders through releases to the market via ASX, information mailed to shareholders and the general meetings of the Company; giving shareholders ready access to balanced and understandable information about the Company and corporate proposals;   making it easy for shareholders to participate in general meetings of the Company; and  requesting the external auditor to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. The Company also makes available a telephone number and email address for shareholders to make enquiries of the Company. The Company has a Shareholder Communication Policy which is available for inspection on the Company’s website. 1.4.9 Trading in Company Shares The Company has had a formal Share Trading Policy in place since May 2007 and subsequently reviewed and updated in December 2010. A copy of the policy is available for inspection on the Company’s website. 1.4.10 Performance Review/Evaluation It is the policy of the Board to conduct annual evaluations of its effectiveness and that of individual Directors. Each Directors performance is appraised personally by the Chairman and in a meeting led by the other independent Director, the Chairman’s performance is assessed. The evaluation process in the current year was overseen by the Chairman. The evaluation process of the Chairman was led by the other independent Director in conjunction with the Managing Director. The objective of this evaluation is to provide best practice corporate governance to the Company. 2. Board Committees Audit Committee 2.1 Due to the size and scale of operations of the Company the full Board undertakes the role of the Audit Committee. As the full Board undertakes the role of the Audit Committee, no formal Charter has been adopted however below is a summary of the role and responsibilities of an Audit Committee. 2.1.1 Role The Audit Committee is responsible for reviewing the integrity of the Company’s financial reporting and overseeing the independence of the external auditors. As the whole Board only consists of three (3) members, the Company does not have an audit committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues and an audit committee cannot be justified based on a cost-benefit analysis. In the absence of an audit committee, the Board sets aside time to deal with issues and responsibilities usually delegated to the audit committee to ensure the integrity of the financial statements of the Company and the independence of the external auditor. 2.1.2 Responsibilities The Audit Committee reviews the audited annual and half-yearly financial statements and any reports which accompany published financial statements and recommends their approval to the members. The Audit Committee each year reviews the appointment of the external auditor, their independence, the audit fee, and any questions of resignation or dismissal. The Audit Committee or is also responsible for establishing policies on risk oversight and management. AVZ Minerals Limited | 41 Corporate Governance 2. Board Committees (continued) 2.1.3 Risk Management Policies The Board’s Charter clearly establishes that it is responsible for ensuring there is a good sound system for overseeing and managing risk. Due to the size and scale of operations, risk management issues are considered by the Board as a whole. A risk management plan has been developed and implemented by AVZ. The plan provides a framework for systematically understanding and identifying the types of business risks threatening AVZ as whole and specific business activities within the Company. A risk register has been developed through the implementation and review of the risk management plan which has identified material business risk of the Company. The risk register also provides the controls in place to mitigate the material business risks and management’s assessment of residual risk. The board believes that it has a thorough understanding of the Company’s key risks and is managing them appropriately. The board is responsible for reviewing annually its risk management system. This includes reviewing operational, financial, compliance, systems and risk management procedures. A copy of the company’s risk management statement is available from the corporate governance section of the company’s website. The Board takes responsibility for the declaration in accordance with S295A of the Corporations Act signed by the CEO and CFO that the financial statements are founded on a sound system of risk management and internal compliance. Their statement assured the Board that the risk management and internal compliance and control system is operating efficiently and effectively in all material respects. Remuneration Committee 2.2 2.2.1 Role The role of a Remuneration Committee is to assist the Board in fulfilling its responsibilities in respect of establishing appropriate remuneration levels and incentive policies for employees. As the whole Board only consists of three (3) members, the Company does not have a remuneration committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues. As the full Board undertakes the role of the Remuneration Committee, no formal Charter has been adopted however below is a summary of the role and responsibilities of a Remuneration Committee. 2.2.2 Responsibilities The responsibilities of a Remuneration Committee, or the full Board include setting policies for senior officers’ remuneration, setting the terms and conditions of employment for the Chief Executive Officer, reviewing and making recommendations to the Board on the Company’s incentive schemes and superannuation arrangements, reviewing the remuneration of both Executive and Non-Executive Directors and making recommendations on any proposed changes and undertaking reviews of the Chief Executive Officer’s performance, including, setting with the Chief Executive Officer goals and reviewing progress in achieving those goals. 2.2.3 Remuneration Policy Directors’ Remuneration was approved by the Board. 2.2.3.1 Senior Executive Remuneration Policy The Company is committed to remunerating its senior executives in a manner that is market-competitive and consistent with best practice as well as supporting the interests of shareholders. Consequently, under the Senior Executive Remuneration Policy the remuneration of senior executive may be comprised of the following:  fixed salary that is determined from a review of the market and reflects core performance requirements and expectations; a performance bonus designed to reward actual achievement by the individual of performance objectives and for materially improved Company performance; participation in any share/option scheme with thresholds approved by shareholders; statutory superannuation.    By remunerating senior executives through performance and long-term incentive plans in addition to their fixed remuneration the Company aims to align the interests of senior executives with those of shareholders and increase Company performance. The value of shares and options granted to senior executives are calculated using the Black and Scholes method. AVZ Minerals Limited | 42 Corporate Governance 2. Board Committees (continued) The objective behind using this remuneration structure is to drive improved Company performance and thereby increase shareholder value as well as aligning the interests of executives and shareholders. The Board may use its discretion with respect to the payment of bonuses, stock options and other incentive payments. 2.2.3.2 Non-Executive Director Remuneration Policy Non-Executive Directors are to be paid their fees out of the maximum aggregate amount approved by shareholders for the remuneration of Non-Executive Directors. Non-Executive Directors do not receive performance based bonuses however they do participate in option schemes as it is considered an appropriate method of providing sufficient reward whilst maintaining cash reserves. Non-Executive Directors are entitled to but not necessarily paid statutory superannuation. Non-Executive Directors are not provided with any retirement benefits other than superannuation. 2.2.4 Current Director Remuneration Full details regarding the remuneration of Directors, is included in the Directors’ Report. 2.3 Nomination Committee 2.3.1 Role The role of a Nomination Committee is to help achieve a structured Board that adds value to the Company by ensuring an appropriate mix of skills and diversity are present in Directors on the Board at all times. As the whole Board only consists of three (3) members, the Company does not have a nomination committee because it would not be a more efficient mechanism than the full Board for focusing the Company on specific issues. As the full Board undertakes the role of the Nomination Committee, no formal Charter has been adopted however below is a summary of the role and responsibilities of a Nomination Committee. The Company has adopted a Diversity Policy and is available for inspection on the Company’s website. 2.3.2 Responsibilities The responsibilities of a Nomination Committee include devising criteria for Board membership, regularly reviewing the need for various skills and experience on the Board and identifying specific individuals for nomination as Directors for review by the Board. The Nomination Committee also oversees management succession plans including the CEO and his/her direct reports and evaluate the Board’s performance and make recommendations for the appointment and removal of Directors. Currently the Board as a whole performs this role. 2.3.3 Criteria for selection of Directors Directors are appointed based on the specific governance skills required by the Company. Directors should have the relevant blend of personal experience in accounting and financial management and Director-level business experience. 3. Diversity 3.1 Diversity and inclusion AVZ and all its related bodies corporate are committed to workplace diversity in relation to genders, age, ethnicity and background. The Company recognises the benefits arising from employee and Board diversity, including a broader pool of high quality employees, improving employee retention, accessing different perspectives and ideas and benefiting from all available talent. Diversity includes, but is not limited to, gender, age, ethnicity and cultural background. 3.2 Diversity Policy The Company has developed a Diversity Policy during the current period which was formally adopted in June 2012. A copy of the policy is available for inspection on the Company’s website. 3.3 Measurable Objectives for Gender Diversity Due to the size and nature of the company’s operations, AVZ has yet to establish measurable objectives for gender diversity. Proportion of women employees and board members 3.4 As at 30 June 2014, the Group had a total of four employees and board members. The proportion of women on the Board and in senior management positions was nil. The proportion of women in our workplace was 0%. 4. Company Code of Conduct The Company has had a formal Code of Conduct which provides guidelines aimed at maintaining high ethical standards, corporate behaviour and accountability within the Company. A copy of the Code of Conduct is available for inspection on the Company’s website. AVZ Minerals Limited | 43 Schedule of Mineral Tenements Tenement Interest Status EPL 4436 EPL 4437 EPL 4438 EPL 4439 EPL 4440 EPL 4286 EPL 4283 EPL 4284 EPL 4285 EPL 4788 EPL 5503 EPL 5502 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% 95% Granted Granted (renewal lodged) Granted (renewal lodged) Granted (renewal lodged) Granted (renewal lodged) Granted (renewal lodged) Application Application Application Application Application Application Project Tumba Himba Brandberg Hammerhead/Thresher Abenab Key All licences are in Namibia, Africa EPL: Exploration Licence AVZ Minerals Limited | 44 

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